How the mighty have fallen. The announcement that Intel Corp is going into serious retrenchment mode should come as no surprise but it still feels like the cage in which we have lived for the past 30 or so years is being rattled and that cage no longer necessarily has Intel inside.
Forty years ago my best friend at university borrowed funds from his parents, took a flight to San Francisco and went to Intel, which none of us had heard of, to ask for a job. They told him they weren’t recruiting. When he replied that he had flown from Manchester, England to get a job they understood that he understood what they were doing and took him on. Had he not jumped ship in the height of the dotcom bubble, he would in all likelihood have made it to the board and some suggest even to CEO or chairman or both. In the event, he went to China – we’re talking 1998 or 1999 – and jumped on that racing train instead.
Thus it is that I have known and followed the fate of Intel a bit closer than I have many other tech giants. Listening to the admission that the company is sitting on the deck of the sinking ship Laptop sounds much like what we heard from Nokia when it came late to the smartphone revolution and Research in Motion, the makers of the Blackberry, when it missed app-driven mobiles. Now Intel is laying off 12,000 staff as it promises to gird its loins for a switch in focus to mobile technology. If you think its chances of successfully changing tack are going to be any better than those of the likes of Yahoo, RIM or AOL, please feel free to go long.
Man of Gold
Goldman Sachs’ earnings were a slightly different matter. First-quarter results might have beaten expectations but if there is anyone out there who is a master of the art of expectations management, it has to be Goldman. First-quarter net income fell to US$1.2bn from US$2.75bn a year earlier. It might have been a crap quarter but Lloyd Blankfein can at least defend himself by pointing to the smaller total wallet of which Goldman still garners a fair share. Love ’em or hate ’em, the Goldman bunch remains the benchmark and the best of breed. The banks are having a torrid time and Goldman, as good as it might be at what it does, cannot escape the vortex.
There has been much talk during the past few weeks of the exceptionally difficult first quarter for banks and how earnings are about to bounce back but I’m afraid I don’t buy that. The model which has bank earnings at the base of GDP growth is either dying or dead and investors are voting with their feet. The up-beat talk of rosier times ahead might excite journalists but it doesn’t fool those who see the trading floors emptying. On the other hand nobody, other than JP Morgan, has weathered the storm better than Goldman and whereas it is hard to keep the faith with Intel, it would need a very courageous investor to place a huge bet against the Men of Gold making the best of a bad job.
Don’t cry for me Argentina
Argentina – anyone who didn’t get trampled to death in the stampede did well. The four-tranche deal came and went with a book of more than US$69bn and went down without touching the sides. To recap, they got away with US$2.75bn three-year at a yield of 6.25%, a US$4.5bn five-year at 6.875%, a US$6.5bn 10-year at 7.5% and a US$2.75bn 30-year at 8%. Every tranche traded at a premium from the break with the three-year trading in a 0.60-1.40 range. The five-year was 1.0-2.0, the 10-year 1.25-2.5 and the 30-year 2.0-4.0 in the market. A massive “Chapeau!” to Deutsche, HSBC, JP Morgan and Santander for a job well done.
However, I did receive a note from a retired money manager yesterday which read “Like Greeks & Cypriots - the Argies do not like having to repay their debts - they strive to have them forgiven or to “kick the can” much further down the road. I have long memories of Argentina from long before the musical”. I cannot fault the sentiment, especially as Buenos Aires has just burdened itself with just as smidgeon under US$1.2bn of annual interest payments on this issue alone. It will most probably take investors a year or two before they discover that they have just had their pockets picked, and picked they have been for sure. Argentina is not offering to pay 8% on 30-year debt because it can afford to pay it. Saudi Arabia, on the other hand, will be paying more like 2% because it can afford to borrow.
It’s up to you, New York
In the wider world, Hillary and the Gonad look to have broken the back of their journey to the nomination with strong showings in New York, and the fat lady can now be heard warming up her vocal cords in the background. I still hear endless criticism of Trump but the question ought to be about who is responsible for creating an environment in which he has been able to sail past all the other candidates. How could Middle America become so disillusioned? Trump is not a creation of the Democrats, he is a creation of the Republicans and, as little as I have ever liked him, don’t try to blame O’Bama.